Great. So we'll go ahead and get started here. My name is Heath Terry, I cover the Internet sector for Goldman Sachs. I want to thank you, all, for joining us and particularly want to thank Duncan Robertson for taking the time to join us, the CFO of OpenTable. Obviously, incredibly busy, busy time of the year, as things kick off for you. So I really do appreciate you being here even if we are only a couple of blocks down from your office.

I. Duncan Robertson

Sure. Thanks for the opportunity.

Question-and-Answer Session

Heath P. Terry - Goldman Sachs Group Inc., Research Division

So for the folks in the audience that are maybe most familiar with OpenTable, just as users of your service, might be good to just start with how you view OpenTable as a company.

I. Duncan Robertson

Sure. So quite simply, we are the world's leading online network for restaurant reservations. And I think most consumers in the U.S. are aware of OpenTable is that if you take one step further, what often people underestimate is that what we have and the real core asset of the business is that we have aggregated real-time online availability at close to 27,500 restaurants not just in the U.S., but Canada and Mexico as well. And then if you look further afield, into the U.K., Germany and Japan. So we really have this robust business where we're providing rich content to consumers to select and review and ultimately make the restaurant reservation. And then on the restaurant side, we are providing restaurant customers with an increasingly rich set of data analytics to help them think about how they run their business and ultimately improve the hospitality experience of restaurants.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

That's great. So 2011 was a bit of a year of change as new CEO, new Chairman, new products. 2012 was very much a year of sort of integrating the acquisitions that you've made and just focus on getting international to where you wanted it to be. What's the year ahead hold for OpenTable?

I. Duncan Robertson

I think it's interesting to look like -- look back 2 years and think about that. But I think if there's anything that characterizes 2013 it's really around experience. And let me kind of tell you what I mean by that. It's experience from the consumer or the diner perspective. OpenTable is transitioning from the concept of being a reservation tool to being a destination site where anybody, anytime and anywhere somebody has a concept of dining out, OpenTable needs to be at the forefront of that thought or that intention to think about where would I like to dine out? Where do my friends dine out? What will I eat when I get there? What will it look like? So all of the experience around having a fantastic night out, not just the ability to transact and make a restaurant reservation, which recognizably, is the ultimate monetization for the business model. But very important for us to think more broadly about what the experience of dining out means to the consumer through the OpenTable platform. And then from a restaurant perspective, helping restaurants really manage their business in a more effective way. And so they get back -- gets back to the experience of interfacing with our platform, historically, it's been through something that we previously called OT Restaurant. We recently upgraded that and added more content to it, and we called it Restaurant Center. That's essentially the analytics and data interface that restaurant owners have into the OpenTable platform. And we can provide better information to restaurant owners to help them run and provide an experience, again, experience for restaurants to diners.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

So it's really interesting -- the suggestion there sort of being that at some point, it sounds like relatively soon, that we'll see restaurants that aren't necessarily OpenTable restaurants on opentable.com as a way for that dining experience to start out, even if the ultimate monetization may not result in a reservation. Am I hearing that correctly?

I. Duncan Robertson

That's an interesting question that we faced 7 months ago at the time that we integrated the toptable platform in the U.K. with the OpenTable technology platform, which we merged in May of last year. And so that was the most recent time that we really thought long and hard about this. And ultimately, the experience that we're wanting to provide to consumers is real-time access to restaurant availability and to surface restaurants on OpenTable that don't have availability or at least -- even real-time availability isn't something that we think adds to the value of the destination site, where in our view, we're not a listing of restaurants in a metro. We're a site where there is an aggregation of real-time availability at restaurants in the metro. And so I don't think in the near term you'll see a listing of restaurants for which there isn't availability on the OpenTable platform.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Got it. How -- and sort of thinking about that being a destination for someone looking to have this dining experience, how does your acquisition of Foodspotting fit into that?

I. Duncan Robertson

So a great question. When we think about how consumers are looking for rich content around the dining experience, there are 3 or 4 really important things that we see consumers and diners wanting to think about and review and research related to a restaurant reservation. One is reviews, and we've had a fantastically robust and valuable reviews program running for years now. In fact, it was -- I think it was in August last year, we announced that we had passed the 15 millionth review submitted to OpenTable for reservation -- for the restaurants on our platform, which really speaks to not only the quality of the reviews because they were all written by verified diners who have dined at those restaurants, but also the quantity. I mean 15 million is a good number to have to search through and be able to benefit from on the OpenTable platform. But the second part of rich content has increasingly been found in the form of images where it's no -- it's nothing new to the OpenTable platform. You see it across other platforms where images and pictures are sending a strong message and are a strong element of search and discovery of the consumer's choice. And so we had started along this path some months ago, where we started to integrate visual images and rich images of dishes onto OpenTable. And it was at around that time that we met the team at Foodspotting, and that was really just a perfect match for us for a couple of reasons. Number one, they had created this fantastic funnel through which rich image content of dishes was being built up every day. Certainly, it wasn't focused on only OpenTable restaurants. It was worldwide, and it was from Shake Shack in New York, which has nothing to do with OpenTable to the very best dining experiences in San Francisco and New York. So there was a nice fit from an image perspective. But from our perspective, there was also just this fantastic team that came with Foodspotting. And it fit really nicely with the core areas that we're looking to build out in terms of capabilities, which are mobile expertise, as we think about how we build out our mobile platforms. It's integration with social elements of what we have in our data within OpenTable and how we can think about leveraging the social graph in the future and leveraging some of the connectivity with Facebook. And then the third aspect is just simply the design and the UX [ph] aspect of the capabilities that the team at Foodspotting adds. So all 3, mobile, social and design came with the team of 10 that we got from Foodspotting. So it was a really nice addition to the team.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

That's great. I mean, when you look -- you mentioned sort of the mobile side of things. What -- Foodspotting obviously natively mobile. Where is OpenTable now from a mobile perspective?

I. Duncan Robertson

So in our most recent quarter, we seated North America 33% of our diners originated on a mobile device. And that number has been growing, it's been growing sequentially. And we have no doubt that, that will just continue. I mean the shift to mobile is impacting OpenTable just like every other business that you read about. And so we're certainly embracing that for a number of reasons. First and foremost, we think mobile presents a great opportunity for our business in that being connected wherever and whenever to a consumer via our mobile device presents us with an opportunity that didn't exist when OpenTable was largely a desktop platform. So now when people are out on the street, they're commuting to work, from work and they have their mobile device with them, we too are with them to complete and to search and to enjoy a restaurant reservation. On the restaurant side of our business, they too are seeing a shift to mobile. And for a long period of time, we've seen restaurants' websites as a strong source of new user acquisition for OpenTable in that people would find the restaurant's website, make the reservation on the restaurant's website and discover OpenTable through that transaction. Mobile has presented us an opportunity to help restaurants optimize their own restaurant websites so that those are featured in an intelligent and usable way. And so we've launched in October last year a program to help provide restaurants with free mobile-optimized websites. And by the end of December, we had just over 2,000 restaurants using our mobile-optimized websites to help them interface with consumers that were using mobile devices and obviously help surfers' reservations through the OpenTable platform on those mobile devices. So I think in every perspective, from the restaurant side, from the consumer side, mobile is something that is only going to increase over time and is very important to our business.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Yes, that certainly makes sense. You're sitting here in San Francisco wherein what is certainly the most penetrated of OpenTable market. What does San Francisco as a market tell us about the rest of the world for OpenTable?

I. Duncan Robertson

So we publish on an annual basis data around our penetration of what we see as our total addressable market for restaurants and diners in North America. And we also publish data around the San Francisco Bay Area. The reason we publish the data around the San Francisco Bay Area isn't because it's different from other markets, but other -- it's actually is similar to other markets. To your point, it was 1 of the original 4 markets of the company focused on and is obviously as a result longer and further penetrated in both restaurants and diners. But what we see is from the context of being a network effect business, as we aggregate and add a more valuable set of real-time available access to restaurants in a metro, as that availability becomes published to consumers on a destination site, that destination site becomes increasingly valuable to consumers. When you can only book 10 restaurants in a city, it's less valuable than when you can book 1,000 restaurants in a city. And so what we see is as we increase the penetration of restaurants in the metro, we gradually see the increase of penetration of seated diners in the city. And at the end of 2012, we were pleased to have 72% of the restaurants in the San Francisco Bay Area using our core Electronic Reservation Book product. And we were seating 35% of the diners in San Francisco through the OpenTable network. And if you put that in the context of North America as a whole, we were up to 49% of the restaurants in North America using our ERB product, but we're only seating 15% of the diners. So as we continue to penetrate some of the newer metros, we certainly see the opportunity to seat more than 15%, well more than 15% of the diners in North America and start to move towards the 35% of the seating in San Francisco.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

That's great. The experience with toptable in the U.K., you've essentially completed the integration for 2.5 quarters or so, almost 3 now. What have you learned from having toptable fully integrated about the market potential for OpenTable in the U.K.?

I. Duncan Robertson

I think we've learned a couple of things. One is to get back to something that I said earlier, the real value that consumers find in the OpenTable platform, which is now branded in the U.K. as toptable, is the value to have access to real-time availability at restaurants. Prior to the integration of the toptable restaurants onto the OpenTable platform, there wasn't the ability to have instantly confirmed reservations. And diners in the U.K. and London react no differently than we do in San Francisco or the U.S., which is it's a much better experience to be able to search and have a confirmed reservation realtime than this unconfirmed pending reservation, which you don't know whether you have or not. So I think that reiterated our belief that the value is to have access to the best restaurants with real-time availability. And so now what we have in the U.K. is 4,000 -- just over 4,100 restaurants. 80% of the Michelin-starred restaurants in London are on toptable. So we've aggregated not only the breadth, but also the quality of restaurants for consumers in the U.K. And what we've done at the same time was we've provided them with a set of products, consumer-facing products that enable them to have the same experience in terms of searching and exploring where to make -- prior to making that instantly confirmed reservation. So in Q4 of last year, we launched the new iPhone app for our consumers in the U.K., which saw a nice improvement in conversion for people that were using the app. So I think what we've recognized is there's value in instantly confirmed reservations and there's certainly value to providing consumers with the right solutions and experience through rich content and the right product for a mobile device or a desktop.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

And how do you feel about the impact or the reception of the way OpenTable has approached pricing relative, in the U.K., relative to the way toptable was approaching pricing before?

I. Duncan Robertson

Well, what we've done in the U.K. for -- since the integration of the toptable platform is that we've essentially replicated the pricing model that we have in North America, which is a price point for a reservation taken off the restaurant's website and a price point taken off the OpenTable network. Toptable had a slightly more complex pricing structure in that it was associated with different times and party sizes. And that was largely associated with the, I would say, the technology light or absence of technology to complete those reservations. And so it was tied more to, more effort and work went into seating a party of 9 at a certain time than seating a party of 2 at a different time because it was easier or more difficult or less difficult, whereas in our system, seating a party of 10 people at 8 p.m. on a Saturday is no more difficult than seating a party of 2 on Monday. It's all online through the Electronic Reservation Book.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

And how do you think about, now that you've gotten to this point in the U.K., looking at additional markets like Germany and Japan? Japan where you've been in for a while, Germany sort of a newer market. What's the broader international opportunity for OpenTable look like?

I. Duncan Robertson

Well, the -- I think, firstly, starting with the U.K., for the first time in -- last week, we published our estimate of the TAM for the United Kingdom. Just like we've said, we think there are 55,000 restaurants that could use a solution from OpenTable in North America that would seat around 740 million diners annually through reservations in North America. We published a similar statistic for the U.K. market, where we think there are approximately 15,000 restaurants in the U.K. that would use an OpenTable solution. And that translates into 200 million diners seated annually in the U.K. through reservations. And so I think in some ways that came as a pleasant surprise to see that the market opportunity in the U.K. is so significant, especially when we put that in the context of our penetration of seated diners in the U.K. which is around 3%. So when we think we're seating 15% of diners in North America, we're only seating 3% of diners in the U.K. It makes us feel good about the opportunity to continue to grow the business in the U.K. Then we take a step into the newer markets, as you said, which are Germany and Japan. And there, we're really still in the "build-out the network of restaurants" phase, which is to continue to secure the right network of restaurants in the key cities, 6 cities in Germany, 1 city in Japan. And before -- that the way our network effect business operates, you really have to have secured the best availability at restaurants before the destination site becomes valuable to consumers. And so our sales team and the team in Germany and Japan is really so focused around building out that network. And as a result, the brand and consumer awareness of OpenTable in Germany and Japan, it's not surprising that it is low as we continue to build out the real valuable asset, which is available tables at restaurants.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Yes, that makes sense. So we do have microphones around the room. If anyone has a question, raise your hand. We've got a few up front, so...

Unknown Analyst

At this point, in the U.S., what's the primary reason or top 3 reasons why a restaurant doesn't want to join your network?

I. Duncan Robertson

Well, the fact that we continue to add -- I think we added just over 580 ERB restaurants on a sequential basis in Q4 suggest that we -- and that's on a net basis and our churn, just because restaurants generally -- there's a reasonably high churn rate in the restaurant industry as it stands. I think we're still doing a pretty good job of adding to the installed base, which actually speaks to the fact that restaurants like the solution we have. If I were to -- if you were to force me to answer the reason, there are many restaurants that -- still, today, 51% of the restaurants in North America that aren't using our products are largely using a pen-and-paper book, and that's something that the restaurant industry has done forever. And our challenge for OpenTable is to continue to show restaurants the benefits of moving away from something that the industry has done forever and to move on to an electronic solution, which is not only a method to run their actual front-house operations but also their table management and their wait staff management operations, let alone how they're receiving reservations not only online but through the phone as well. So I think it's an operational shift that we need to continue to convince restaurants as something that is good for their business. Clearly, there's a pricing implication that comes from it, to run a restaurant on a pen-and-paper book. I won't talk about the opportunity cost because I certainly believe there's an opportunity cost to that to continue to run on pen and paper. But moving to the OpenTable System, we're not free. We're running a business here. And that means that there is a -- we have -- our revenue model from restaurants are a monthly subscription fee that averages around $249 or $250 per restaurant per month to use our service. And then there's a per seated diner fee, where reservations -- a diner is seated through the OpenTable [Audio Gap] is $1 per diner and a reservation from the restaurant's website is $0.25 per diner. So I think the combination of getting restaurants to understand that it is a move away from the way restaurants have operated for years and the concept that this new solution actually comes at a price, that the challenge is to make restaurants understand that there's actually a value in shifting for both of those reasons. And the fact that we built out a network of 27,500 restaurants worldwide suggests that there's many thousands of restaurants that see great value in that.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Okay. [indiscernible]?

Unknown Analyst

Can you talk about what trends you're seeing in terms of adoption of the app within the context of the mobile traffic, both in the smartphone and the tablet context and the impact that's having on yield per average seated diner?

I. Duncan Robertson

Yes. So when we think about -- I mean, when we think generically about mobile, we're not -- somebody was asking me earlier today what's our view of where apps go versus HTML5 sites. I think we're less focused on calling whether it's an app -- in 2 years' time, it's an app world versus not. We want to make sure that our mobile experience for consumers and restaurants, because we're launching products that have mobile experiences for restaurants as well, we want to be sure that those experiences, either on a smartphone or a tablet, are the best they can be. Obviously, the app universe at the moment, largely in our case largely around the iOS platform, is very important to us. And so we've continued to develop on that. We were thrilled to have the opportunity to launch -- we relaunched a new iPhone app at the same time that Apple launched their iPhone 5 last year. We had some nice co-branding at that event. And clearly for us and our diners, using the app is important and will continue to add the content that makes app a rich experience if you're -- if you look -- and there's room to improve on that. I was speaking earlier about the importance of images. And you'll see that we very nicely integrated images onto our desktop site and our aim dot [ph] OpenTable site. There's been a less rich experience to date on our mobile app site, which is just an opportunity for us to continue to enhance the experience of the iPhone app, which we will invest in. And the team that comes over from Foodspotting is a good source of resources to help us do that.

Unknown Analyst

I've got a couple of questions, but first, a clarification. You said you had 15 million reviews, is that in 2012?

I. Duncan Robertson

We had 15 million reviews cumulatively that have been posted to -- so the way we aggregate our reviews is every time you complete a reservation, you'll get -- you'll receive an email to ask you about the experience. And our -- so cumulatively, more than 15 million reviews. What we do with our reviews is we refresh them every 120 days. So you won't see a review on the OpenTable platform that's older than 120 days, which means they remain fresh and relevant. And we think that's an important element of the consumer experience.

Unknown Analyst

Are you able to tell us what percentage of customers actually do a review?

I. Duncan Robertson

I'm sorry, what's that?

Unknown Analyst

What percentage of the seated diners actually do a review?

I. Duncan Robertson

That's a great question. I don't know the answer to that.

Unknown Analyst

Okay. So my real question is such in regards to it was, when you reach a certain level of penetration among restaurants, is that 51% [indiscernible] now. After the critical mass is achieved and people know about the restaurants, what other factors help the growth in seated diners? In other words, how are you going to grow that 15% of seated diners to the 51% or something that is appropriate there?

I. Duncan Robertson

So the real drivers for -- as we continue to grow the restaurant base at 49% in North America and at 72% in the Bay Area, obviously, the long-term business model for us is to focus on seated diners where we're at 15%, and we think that we can grow that to 35% or 36% in San Francisco and then well north of that. And so that's why at the beginning of the conversation, I was saying what's so important for us this year, it's around the experience for consumers. Because as we think about how we grow -- we accelerate and we grow the seated diners through the OpenTable network, there are some important factors to that. It's around how do we add new users to the OpenTable network? How do we add frequency over the existing users that we have in our network to get people to visit OpenTable more frequently? And then lastly, when people are visiting our platform, be it on the PC or a smartphone or a tablet, how do we actually get them to monetize for us, which means make a reservation? And all -- many of those things are associated with content. If we can have the right content on the OpenTable platform, which keeps people visiting the platform, be it reviews, be it images, be it menus, that's an important element to get the frequency of traffic to the platform. And then from a conversion perspective, we need to continue to be able to iterate more rapidly to see what appeals to our smartphone and dot site versus the desktop site. And a fantastic addition to our tech team last year was Joseph Essas, who joined us as CTO in July last year. One of the main areas of focus that Joseph's had over the last 7 or 8 months has been to take the technology platform that he inherited and work in ways to make that more nimble so that we can iterate more rapidly. So -- and the reason we want to be able to iterate more rapidly is to be able to provide to consumers the experiences that we can then test to say did that convert better, the same or worse? And more rapid iteration gives us the opportunity to find those changes to the platform that convert better and hence, monetize for us better. So the best example that we can point to recently, as I mentioned, we relaunched the iPhone app for toptable in the U.K. in Q4. And the conversion of the new app compared with the old app was 2x. Certainly, I don't think we'll be able to find those kinds of opportunities that often, but it's a great poster child to say there are ways to get conversion by increased -- just a couple of basis points, let alone 2x, where you provide consumers with the right product at the right time and they convert into a monetized transaction for us.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Time for one more.

Unknown Analyst

Just a follow-up on that. So you've been talking about some of these initiatives, including re-jiggering maybe the search in some cities where you have a lot of restaurants and listing A to Z as necessarily appropriate. Can you talk to us more about the traction of some of these initiatives and what other kinds of initiatives you have to reinvigorate seated diner -- the trajectory of seated diner growth?

I. Duncan Robertson

Sure. I think, again, it comes back largely to content and experience. And the 3 pillars of those that we're most focused on right now are some of the things that we've spoken about. There's a part that we haven't spoken about today that is using data to personalize the service. I think we recognize that there are many interactions that we have with the OpenTable platform today, which is when you do a search for restaurants in San Francisco and I do, we get exactly the same feedback in terms of search. Our ability to aggregate the data from restaurants through the work that we're doing to take our ERB product today in the cloud will only help us access that data more rapidly to then combine that with your history of web search, the history of your friends' dining experiences through integration through Facebook connect and then to be able to serve with some more personalized experience, either through the email marketing that we do. So you look at 3 emails over the last 10 days saying, "Have you made a reservation for Valentine's Day," rather than just having a generic email saying, "Have you made a reservation?" The email from a personalized perspective should say, "Have you made a reservation at the restaurant that you enjoyed and reviewed with a 5-star rating last year?" It's really about being able to aggregate and manipulate that data more rapidly and in a personalized way. So I think other than that rich content, personalizing the experience will certainly have a benefit as we all interface with the platform. In terms of the timeline of what comes when, I certainly don't want to go down that road in this format other than to say that our product team and our technology team are very focused on those broad areas that I spoke about.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Great. Duncan, I really appreciate you taking the time. This has been fantastic. Thanks.

I. Duncan Robertson

Great. Thank you.

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